Decision time

9:58 am General

I bought some shares in Sun a while back when they were pretty cheap (pre-reverse split, around $4) – I really liked their product line, and liked the noises I was hearing around their free software strategy. For a while, the share did well, at one stage I was up about 50% when the share went over $6.

But then there was a series of things that seem to have shaken confidence – the ticker name change to JAVA seemed about as gimmicky as McCain “suspending” his campaign, the reverse split sent completely the wrong message to the market (another cosmetic change, but one that sends a message that you think the price might be going down), and from the heady days of 2007 when we had 5 straight quarters in the black, Sun’s back in the red for the last couple.

With shares now down to pre-split levels, Sun’s lost 80% of its market value in the last year, which leads me to think that one of three things are true:

  • Sun is going down the tubes, and the market is singing their requiem – in which case I should sell at a loss, take whatever I can get and call it quits
  • Sun is a prime acquisition target – I should probably hold onto my shares in that case and get a little more than current market value
  • Sun is a company that will survive and thrive again, and it’s currently undervalued due to the crisis – in which case, I might consider doubling down

Obviously I’m no market expert, and how the share price goes over the next month or so will depend on earnings announced at the end of October – the way things are going, you have to expect those results to be bad. I’m not one to ask for advice like this usually, but I’d appreciate people sharing their insights on Sun’s prospects.

9 Responses

  1. AH Says:

    I doubt anyone knows for sure which way it’s going to go, but it doesn’t strike me as likely that Sun are going to be posting decent earnings for a while.

    Personally, I would sell in anticipation that they’re going to go down again further, and only think about buying back when it looks like they’re on the mend again.

    Depends how long a game you want to play, though. I don’t know who would take them over, but I guess you never know.

  2. dcg Says:

    What I think it’d be sad is that when/if Schwartz gets fired, sun could get a new ceo that thinks that supporting opensource was an error.

  3. Geoff Teale Says:

    I would have to say that I see the problems being pretty deepset. The momentum at Sun is downwards now. Sun held on for too long with it’s luxurious R & D and acted like the first internet boom had never ended.

    Sure they’ve got some great tech, and their trying their best to rescue Solaris from the brink, but where’s the revenue stream and how does it grow.

    I suspect that Sun will continue to sink, leveraging it’s long term customers for a core revenue stream and then semi-stabilise as a much smaller company. At that point I think they’ll become a very attractive buy for someone, possibly Oracle, IBM, Apple or Red Hat. MySQL might give them some new life, but I just don’t see it being enough to make Sun a major player in the future.

    Shame really, the era of the old proprietary UNIX vendors is all but over. If it weren’t for Linux and Mac OS X I’d be very sad.

  4. Hub Says:

    I think I’d either wait for an acquisition (still wondering who would) or just cross fingers. Selling at lost, it depends of the amount, but I’m not sure it is worth it.

  5. Jerome Haltom Says:

    I would hold the investment. Investments are long term. Sun has a huge amount of assets. From brand name, to product lines, to marketing teams, to programmers, to patents, etc. They will not vanish over night (unless there are accounting tricks being used, etc). You should not have invested in Sun if you did not intend to hold it till the end. Even if somebody purchases them, they’d be buying all their assets, including their investment obligations, and the return on those obligations somehow filters to you.

  6. Sun Employee Says:

    Because they’re one of the most-traded stocks on the market, in recent years Sun’s share price has tracked the NASDAQ’s performance a lot more closely than it has Sun’s own fortunes.

    So really, you should worry more about what you think the NASDAQ is going to do, than what Sun is going to do.

  7. Dave Neary Says:

    Sun guy,

    I have to disagree with you there. Trend lines, maybe, but magnitude is not the same. When the Nasdaq sneezes, Sun catches ebola.

    6m: Nasdaq -32%, Sun -67%
    1yr: Nasdaq -43%, Sun -79%
    5yr: Nasdaq -17%, Sun -66%

    On that 5yr chart, Sun’s had some ups & downs, and was ahead of the Nasdaq as recently as Summer 2007, but has since plunged from $25 a share to $5 a share, while in the same time, the Nasdaq’s “only” lost 40%.

  8. Glynn Foster Says:

    I think you’d have to work at Sun to fully appreciate the shift that the company has gone through in the last couple of years. I’m optimistic, and to some extent I always have – the current economic crisis isn’t helping the market at all, but where there’s a crisis, there’s an opportunity…I’m far from selling yet.

  9. Tim Says:

    I think the standard response to these kind of questions is: if you didn’t have those shares already, would you buy them again now? If not, you should probably sell them (irrespective of whether you’ve made a loss or a profit so far).

    Chances are, of course, that the stock is oversold just like the rest of the market and will go up again when the market goes up, whenever that may be. Even if you believe that, I’d only ‘top up’ if your answer to the above question was a resounding ‘YES!’.

    Myself, I think Sun’s just an awful stock to own. I can’t see an exciting growth story there, nor do I see a come-what-may-type reliable income/dividend story (mind you, this is just my gut feeling; I don’t follow the company or news around it, nor have I ever looked at its balance sheets).